Getting to the heart of the Obamacare premium debate

Last Monday, we got a first look at insurance premiums under Obamacare when Vermontís insurers became the first in the nation to set their bids. The answer? Insurance premiums in Vermont will be pretty much the same after Obamacare as they were before Obamacare.

Vermont might prove an outlier. As The Wall Street Journal reports, ďbecause benefits in the stateís plans are already relatively close to meeting most of the lawís requirements, insurers didnít need to make major changes to the relatively costly policies they already offer.Ē

One manís ďrelatively costlyĒ insurance is, of course, another manís ďthank God, my insurance covers thatĒ insurance. And it works the other way, too. One manís relatively cheap insurance is another manís endless fight with the insurance company because his plan, confusingly, didnít cover his illness. Didnít he read the super-fine print beneath the fine print?

That gets to the heart of whatís become a terribly confused debate over premiums in Obamacare. Vermontís insurers didnít have to change their products because their products were already very good. In other states, some of the insurance products will have to be upgraded, as theyíre stingier. But Obamacare will help people pay for the better insurance. Comparing the two isnít just comparing the cost of apples to the cost of oranges. Itís comparing the cost of apples to somebody taking you out to dinner.

Letís say I work a job at a firm weíll call Texas Inc. The insurance they give me doesnít cover any conditions I had before I took the job. The deductible is really high. The network is limited. On the bright side, the premiums are low. But Texas Inc. doesnít help me pay them.

But then I get a new job at Vermont, LLC. Their insurance plan is excellent! The network is expansive. They cover everything thatís wrong with me. The deductible is low. And the premiums, consequently, are higher. But my employer pays half the cost ó and so the total, out-of-pocket cost to me is lower.

Did my premiums just ďgo upĒ? Or did I switch to a better insurance plan?

For most people, this would be called switching to a better insurance plan. In fact, this is why employers offer good insurance in the first place: It helps them lure talented workers from companies that donít offer good health benefits.

People want better insurance! When theyíre able to afford it ó either because their employer helps them pay for it, or because they got richer, or because they turned 65 and qualified for Medicare ó they donít wander around lamenting their higher premiums.

When people say Obamacare will, in certain parts of the country, for certain people, increase premiums, what they mean is something akin to the switch from Texas Inc. to Vermont LLC. Obamacare will force insurers to upgrade products to meet a minimum level of comprehensiveness, lay down some rules limiting price discrimination against the sick, the old and females, and then help people pay for the final product. Itís a lot like what happens if you move to an employer that offers better health insurance and helps you pay for it.

The Congressional Budget Office wrote about this effect during the Obamacare debate, and its study was widely reported. When we talk about premiums changing, weíre talking about the minority of Americans who buy health insurance on their own or through a very small employer. For them, on average, CBO predicted premiums would increase because subsidies would make it possible to purchase higher-quality insurance. In other words, with more money to purchase insurance, they were going to purchase better insurance. But if you held the insurance product constant, then premiums for the same policy in the same market would fall, as the risk pool would get a bit healthier.

The intent of Obamacare is to ensure that almost all Americans are covered by high-quality insurance that they can afford. To say that the law will move many Americans onto more costly insurance products is simply to restate part of that premise more negatively, and to leave out the effect of the subsidies, or the change in the underlying insurance product, is to mislead.